Unit - 3
Trade Secrets
Trade secret protection confers owners the right to prevent the information lawfully within their control from being disclosed, acquired or used by others without their consent in a manner contrary to honest commercial practice. According to WIPO, Trade secrets are intellectual property (IP) rights on confidential information which may be sold or licensed. In general, to qualify as a trade secret, the information must be:
- Commercially valuable because it is secret,
- Be known only to a limited group of persons, and
- Be subject to reasonable steps taken by the rightful holder of the information to keep it secret, including the use of confidentiality agreements for business partners and employees.
Type of information that could be a trade secret
(1) A trade secret may consist of information relating to a formula, pattern, device or other compilation of information that is used for a considerable period of time in a business.
(2) Often, a trade secret is technical information used in the manufacturing process for production of goods.
(3) A trade secret may relate to marketing, export or sales strategies, or a method of bookkeeping or other business management routines or procedures, including software used for various business purposes.
Other examples of potential trade secrets may include technical, scientific or financial information, such as business plans, business processes, list of key customers, list of reliable or special suppliers, product specifications, product characteristics, purchase prices of key raw materials, test data, technical drawing or sketches, engineering specifications, proprietary recipes, formulas,
The unauthorized acquisition, use or disclosure of such secret information in a manner contrary to honest commercial practices by others is regarded as an unfair practice and a violation of the trade secret protection.
Trade secrets are the secrets of a business. They are proprietary systems, formulas, strategies, or other information that is confidential and is not meant for unauthorized commercial use by others. This is a critical form of protection that can help businesses to gain a competitive advantage. Although intellectual property rights protection may seem to provide a minimum amount of protection, when they are utilized wisely, they can maximize the benefit and value of a creation and enable world-changing technology to be developed, protected, and monetized. For example, Coca Cola Formula, KFC Secret Spice –Mix, McDonald’s Big Mac sauce, Google search algorithm etc.
Trade secret law in different countries
Trade Secrets have been provided protection by a large number of agreements and countries throughout the world. For e.g.: -
- NAFTA
Member countries must protect trade secrets from unauthorized acquisition, disclosure or use. Remedies must include injunctive relief and damages. In response to NAFTA, Mexico has amended its 1991 trade secrets law to permit private litigants to obtain injunctive relief.
2. GATT
On April 15, 1994, the major industrialized nations of the world, including the United States, concluded the Final Act resulting from the Uruguay Round of GATT (General Agreement on Tariffs and Trade). GATT established the World Trade Organization (WTO) and promulgated various trade-related agreements including TRIPS or the Trade-Related Aspects of Intellectual Property Rights. Under GATT, "undisclosed information" must be protected against use by others without the consent of the owner if the use is contrary to honest commercial practices. Also, there is third-party liability for misappropriation if third parties knew or were grossly negligent in not knowing that such information had been obtained dishonestly. The TRIPS makes it obligatory on member states to ensure Protection of Undisclosed Information under Article 39 of the Agreement. The TRIPS Agreement also requires member countries to provide effective remedies for trade secret misappropriation including (a) injunctive relief (b) damages and (c) provisional relief to prevent infringement and to preserve evidence.
3. Brazil
In 1996, Brazil revamped its intellectual property laws. Trade secrets are protected under the rubric of "unfair competition." Borrowing from U.S. Law, a variant of the Section 757 (6-factor) test is used to determine whether a particular piece of information qualifies as a trade secret, Common knowledge, knowledge in the public domain, or knowledge that is apparent to an expert in the field cannot qualify for protection as trade secrets. The trade secret owner must take positive steps to safeguard the secrecy of the information. The full panoply of relief is available--compensatory damages, punitive damages and injunctions. There are also criminal sanctions available against anyone who releases, exploits, or uses without authorization a trade secret to which he or she had access by virtue of a contractual or employment relationship.
4. Japan
Effective June 15, 1991, Japan enacted a national trade secrets law. Trade secrets include any "technical or business" information that has commercial value, is not in the public domain, and which has been "administered" as a trade secret. Infringement occurs when a person procures a trade secret, by theft, fraud, or extortion or when there is an unauthorized use or disclosure of a lawfully acquired trade secret for unfair competition. An injured party may obtain injunctive relief and damages. The trade secret holder may also request destruction of any articles that have been manufactured as a result of the illegally obtained trade secret. The statute has similarities to the Uniform Trade Secrets Act. For sample, there is a 3-year statute of limitations after discovery of the trade secret violation. There are no criminal penalties in the statute.
5. China
The Law of the People's Republic of China (PRC) against Unfair Competition (Unfair Competition Law) was promulgated by the State Council in September 1993 and became effective on December 1, 1993. This is China's first trade secret law. The term "trade secrets" is defined as technical and management information that is unknown to the public, can bring economic benefits, is of practical value, and for which the rightful party has adopted measures to maintain its confidentiality. Article 10 of The Unfair Competition Law prohibits business operations from engaging in certain acts and the law also provides for the remedies in case of infringement of trade secrets.
6. Korea
In 1991, Korea also amended its laws to provide statutory protection for trade secrets. This law, effective December 15, 1992, was enacted during US litigation between GE and a Korean firm that had acquired GE trade secrets from a former GE employee. The revised Unfair Competition Prevention Act (UCPA) defines trade secrets and Misappropriation ("infringing" acts).
7. Israel
Israel has a criminal statute (Penal Law 1977 Section 496) prohibiting the disclosure of trade secrets by an employee. Employee contracts enjoin employees from using trade secrets and industrial know-how. There is an implied obligation of confidentiality between employers and employees. Besides the abovementioned countries many more countries like United Kingdom, Canada, Mexico, France, Germany, Czech Republic, Hong Kong etc. provide protection for trade secrets, or confidential or undisclosed information through their various old and new laws.
Key takeaways
Trade secret protection confers owners the right to prevent the information lawfully within their control from being disclosed, acquired or used by others without their consent in a manner contrary to honest commercial practice.
Trade Secrets seems to be a neglected field in India, as there is no enactment or policy framework for the protection of trade secrets. This form of intellectual property is a new entrant in India, but is nevertheless a very important field of IP. Protection of trade secrets is a very important and one of the most challenging tasks for the Indian government as this will enhance the foreign investment in India giving a boost to the Indian economy. Foreign investors have to be assured of the protection of their trade secrets, so that they can do business with our country. A proper policy for trade secret protection will further enhance the security in our own industry. Almost all the countries in the world have a policy for the protection of trade secrets and India also being a signatory to the TRIPS is under an obligation to amend its laws or create a new law in order to safeguard the trade secrets of various businesses. So, a proper policy for the protection of trade secrets in India is the need of the hour in order to provide a sense of security among the foreign investors and the local businessmen regarding their trade secrets which will further boost the Indian economy.
Protection of Trade Secrets in India
As mentioned above, in India, no substantive authoritative text or case laws are available to determine the nature or ambit of trade secrets. But the Indian courts have tried putting the trade secrets of various businesses under the purview of various other legislations in order to protect them and also, they have tried to define what a trade secret is in various cases, some of them are as follows: -
1. American Express Bank Ltd. v. Ms. Priya Puri Delhi High Court, in this case defined trade secrets as “… formulae, technical know-how or a peculiar mode or method of business adopted by an employer which is unknown to others.”
2. Michael Heath Nathan Johnson v. Subhash Chandra and Ors and John Richard Brady and Ors v. Chemical Process Equipment’s P. Ltd. And Anr. Took note of the contentions of the counsels who referred to English decisions to define trade secrets
3. Mr. Anil Gupta and Anr. v. Mr. Kunal Dasgupta and Ors the Delhi High Court held that the concept developed and evolved by the plaintiff is the result of the work done by the plaintiff upon material which may be available for the use of anybody, but what makes it confidential is the fact that the plaintiff has used his brain and thus produced a result in the shape of a concept.
The legislations which are having a connection with the trade secrets can be summed up as
1. Copyright Act, 1957[Section 51,55 and 63]
2. The Designs Act,2000
3. The Information Technology Act, 2000[Section 65, 72]
4. Indian Penal Code [Section 408, 415]
5. The Indian Contract Act [Section 27]
6. The Competition Act, 2002 [Section 3]
7. Civil Procedure Code
8. Criminal Procedure Code
Key takeaways
Trade Secrets seems to be a neglected field in India, as there is no enactment or policy framework for the protection of trade secrets. This form of intellectual property is a new entrant in India, but is nevertheless a very important field of IP. Protection of trade secrets is a very important and one of the most challenging tasks for the Indian government as this will enhance the foreign investment in India giving a boost to the Indian economy.
The liability of misappropriation of trade secrets are discussed under following heads-
a) Misappropriation of trade secrets
(1) Unfair acquisition that is, acquiring a trade secret by theft, fraud, coercion, or other unlawful or dishonest acts.
(2) Acquiring a trade secret with knowledge of its prior unlawful acquisition, or acquiring such trade secret without actual knowledge of its unfair acquisition but being grossly negligent in failing to know of the earlier unfair acquisition and, in either case, using or disclosing a trade secret so acquired.
(3) Although innocently acquiring a trade secret, using it or disclosing it after learning of its earlier unfair acquisition by another person.
(4) Using or disclosing the trade secret in breach of a contractual obligation to maintain the trade secret.
b) How trade secrets get stolen
(1) Industrial espionage Intense competition in domestic and export markets has also lead to an alarming increase in theft by outsiders, known as industrial espionage. Such activities are on the rise due to increasing global competition, shorter product cycles, thinning profit margins, and declining employee loyalty.
i. External theft
External theft includes corporate spying with professional criminals targeting specific technology, initiating network attacks (hacks), laptop computer thefts: - accessing source code, product designs, marketing plans, customer lists - approaching employees to reveal company information etc. Businesses strive to protect their trade secrets by enacting corporate security measures and confidentiality clauses in employment, technology licensing, distributorship and joint venture agreement.
Ii. Internal theft:
Internal theft by disgruntled workers or former employees is also intentional. Some of these people allow themselves to be exploited by competitive intelligence operatives, either for money or merely for spite.
c) Protection of trade secrets
Generally, most countries do not have a specific law for trade secrets. The owner of trade secrets has to rely on relevant provisions of the national law against unfair competition and/or by court action under the law of torts and by appropriate clauses or provisions in employment agreements and other types of business agreements in accordance with the contract law of the country.
(1) Unfair competition law / Principles of tort
When misappropriation is done by competitors who have no contractual relationship or indulge in an act of theft, espionage, or of subversion by employees. The law of tort is judge‐made law in 'common law' countries.
(2) Contract law
When the agreement between the parties seeks to protect the trade secret by using a non‐disclosure clause or confidentiality clause, through an anti‐reverse engineering clause, or where an implied confidential relationship exists, such as between an attorney and his client, or an employer and his employee, etc.
(3) Criminal law
When an employee steals trade secrets from a company or someone does espionage or in involved in acts that may be considered as invasion of privacy, etc., or circumvention of technical protection measures of IT / non‐IT systems
d) The remedies
(1) A court order restraining the person from further benefiting from or misusing the trade secret.
(2) A court order for monetary compensation in the form of damages, based on the actual loss caused as a result of the misuse of trade secret. (For example, lost profits or unjust enrichment)
(3) Seizure order by the court, based on a civil action, which may include a search of the defendant’s premises in order to obtain evidence to establish the theft of trade secrets at trial.
(4) Precautionary impoundment of articles that include misused trade secrets, or the products resulting from its use or misuse.
(5) A court may order the destruction of the products made by the infringing act, and/or destruction of the equipment used to carry out the infringing act.
(6) Some countries permit the imposition of punitive damages for wilful encouragement of trade secret theft.
Key takeaways
- Unfair acquisition that is, acquiring a trade secret by theft, fraud, coercion, or other unlawful or dishonest acts.
- Acquiring a trade secret with knowledge of its prior unlawful acquisition, or acquiring such trade secret without actual knowledge of its unfair acquisition but being grossly negligent in failing to know of the earlier unfair acquisition and, in either case, using or disclosing a trade secret so acquired.
Trade secret litigation involves a company’s or individual’s most confidential technical, financial, or business information, which the company or individual considers its “trade secrets.” For example, the formula for Coca-Cola has been protected as a trade secret for over 100 years. Trade secret cases often involve a former employee who takes his or her former employer’s proprietary information and discloses it to his or her new employer, which is frequently a competitor. Or the case may involve two companies to a joint venture who exchange trade secrets under non-disclosure agreements, and one company later decides to go on its own while using the other company’s confidential information. In today’s digital age, trade secrets are increasingly stolen by malicious hacking into a competitor’s network infrastructure. The biggest challenge for trade secret owners often is maintaining the secrecy of the trade secret. Once sensitive financial or business information is publicly disclosed, its value as a trade secret may be worthless. No amount of damages from a successful lawsuit may ever remedy the loss. For this reason, when trade secret theft is suspected, the owner must act expeditiously to obtain a temporary restraining order or preliminary injunctive relief to prevent the trade secret from being further exposed. Where the trade secret is kept electronically, The Rapacke Law Group often requests the Court appoint a forensic examiner to investigate the extent of the theft. A swift preliminary investigation can form the basis to then request the Court to take action to seize or thwart any further dissemination. For an accused mis-appropriator, or for an employer who is alleged to have hired an accused misappropriator, engaging a forensic expert and commissioning a thorough internal investigation may prove critical to gathering evidence and establishing defences. In addition to potential civil liability, criminal exposure is a serious risk under federal statutes such as the Economic Espionage Act and the Computer Fraud and Abuse Act. Mounting a robust defence on both civil and criminal fronts simultaneously requires experienced counsel with a strategic eye toward favourable resolution. Once in litigation, the case often centres on whether the alleged trade secrets actually qualify for protection, whether they were misappropriated, and whether the trade secret owner suffered damages from any misappropriation. To qualify for protection, trade secret owners must prove that they took reasonable steps to protect the confidentiality of their trade secrets, such as requiring non-disclosure agreements for anyone who works with the trade secrets, and limiting the distribution of the trade secrets to the smallest group necessary. Trade secret cases frequently involve expert witnesses, who testify on issues ranging from whether the proprietary information is a trade secret to whether a trade secret was stolen by unauthorized use of a computer to the value of trade secrets and damages for their theft.
Protection of trade secret
It is important to take appropriate and adequate steps necessary to protect a company’s trade secrets before litigation becomes necessary. Trade secret litigation should be a last resort to protection. Protecting confidential information from disclosure, both within the company and when negotiating with third parties, may require taking proactive, preventive measures. Such measures include:
- Non-disclosure agreements
- Non-solicitation agreements
- Non-compete agreements
- Confidentiality agreement
Proactive protection of trade secrets can make litigation more efficient and less expensive. Consulting IP attorneys with experience and understanding of trade secret law can help prevent issues with loss of valuable trade secrets as a business grows.
Key takeaways
Trade secret litigation involves a company’s or individual’s most confidential technical, financial, or business information, which the company or individual considers its “trade secrets.”
As defined by the International Trademark Association, the right of publicity is an intellectual property right safeguarding against the misappropriation of the name, likeness, or other indicia of personal identities- like nickname, pseudonym, voice, signature, likeness, or photograph of a person, for the purpose of commercial benefit, by any other person.
Legal provisions pertaining to publicity rights
The publicity rights in India have been recognized time and again by the judiciary, however, there is no expressed mention under any present statute. However, the violation of the publicity right can be deemed as unfair trade practice, misappropriation of intellectual property, and also as an act of passing off. Nevertheless, publicity right in India can be derived from various statutes.
- The Trade Marks Act, 1999
As per Section 14 of the Act, if a trademark registration application is filed suggesting a relation with any living person or with any person who deceased 20 years prior to the date of filing such application, then the Trademark Registrar may need the applicant to provide the consent of such living person, or the consent of the legal heirs of the deceased, and in absence of such consent, the Registrar may deny the registration. Thus, under the Trade Marks Act, 1999 an individual cannot register a trademark associated with a celebrity either alive or dead unless the consent from such celebrity or his/her legal heir is provided to the applicant, as the case may be. Moreover, using a celebrity’s name as part of a domain name can also be restricted under the Act.
2. The Copyright Act, 1957
According to Section 38 and Section 57 of the Copyright Act 1957, pertaining to the rights of a performer and the moral rights of an author respectively, are enforceable for protection from the unauthorized use of such performer’s or author’s marketing rights and their reputation. Moreover, the photograph, image, painting, or other such derivatives of an individual may be protected under the Act. Although copyright ownership over a photograph may be an issue as the photographer will have the copyright over the photograph he/she has clicked, other attributes, like an individual’s signature, may be protected under this Act.
3. The Emblems and Names (Prevention of Improper Use) Act 1950
This Act up to an extent rendered protection from the unauthorized use of the names of certain dignitaries of national significance and institutions specified under the Act, for commercial purposes, in absence of the governmental permission.
4. The Competition Act 2002
As per the provisions under this Act, any unauthorized use of an individual’s name or likeness suggesting to the consumer that such individual is associated with any product endorsement that is untrue or misleading and that can be restricted.
Infringement/misappropriation of Publicity Rights
In absence of any specific statute, infringement of the right to publicity is undefined under Indian law. However, any unauthorized use of a celebrity’s persona, image, or information amounts to the infringement of his/her right of publicity and can therefore challengeable as a violation of his/her publicity rights. As per the provisions of the trademark and the copyright law, an infringement suit is fileable either by the licensor or the licensee or together by them, relying on the terms and conditions of such agreement. The defences under trademark law and copyright law may be applicable on the right of publicity. For example, the media may publish any information pertaining to any individual if such information is a matter of public interest and concern.
Remedies Against Infringement
The following remedies are available in the event of an infringement of the right to publicity.
- The owner may institute a civil suit for unwarranted interference to the right as this is a civil wrong. The right to privacy is also enforceable through filing of a writ petition or through an action against tort.
- The owner may file a defamation suit against any individual making or publishing any imputation that concerns the owner of such right, knowing or having reason to believe that such imputation will damage or harm the reputation of the owner.
- The owner may bring a civil or criminal suit, as defamation is both considered as a civil wrong as well a criminal offense in India.
- A passing-off action is also fileable against a third party attempting to create a false association between its product and a celebrity through unauthorized representations that such celebrity is engaged in the endorsement of the product.
- An injunction is granted by the court on satisfaction of the following 3 conditions:
a) that there exists a prima facie case in the plaintiff’s favour;
b) that the balance of convenience is in the plaintiff’s favour; and
c) that irreparable loss or harm will result to the plaintiff on refusal of the claimed injunction.
Apart from the injunction, damages are awarded by the Indian courts in the form of actual damages, damages caused to goodwill and reputation, and sometimes in the form of punitive damages.
Key takeaways
As defined by the International Trademark Association, the right of publicity is an intellectual property right safeguarding against the misappropriation of the name, likeness, or other indicia of personal identities- like nickname, pseudonym, voice, signature, likeness, or photograph of a person, for the purpose of commercial benefit, by any other person.
When advertising provides false information with objective to deceive the consumers, then such advertisement is termed as false advertisement. In other words, false advertisement is the crime or tort of publishing, broadcasting, or otherwise publicly distributing an advertisement that contains an untrue, misleading, or deceptive representation or statement which was made knowingly or recklessly and with the intent to promote the sale of property, goods, or services to the public. For example,
- Showing the product in a picture as being bigger than it actually is,
- Misuse of terms like sugar free, light, natural etc.
- Putting yellow oranges in a red mesh bag to make them appear riper than they are. Etc.
False and misleading advertising takes many forms:
- Bait-and-Switch
This occurs when a company advertises a product or service it never intends to provide. For example, Joe’s appliance store advertises a dishwasher at an unbelievably low price, while mentioning in the ad that supplies are “limited”. When customers arrive at the store, they’re told that the advertised model is sold out and are shown more expensive dishwashers instead.
2. Misleading Photos or Illustrations
Sometimes images included within an ad make an item look more attractive to consumers than it really is. For example, grocery store chains sometimes use photo enhancement software to enhance the actual appearance of food items so that you will buy them.
3. Price Deception
Price deception is when a company uses false or misleading pricing in its ads for a product or service. For example, a clothing store may advertise that a shirt is on sale at half-price when that advertised shirt was never sold at a higher price to begin with.
4. Unsubstantiated Claims
This occurs when a company claims that their product will provide specific benefits to end users that have never been officially proven.
Key takeaways
When advertising provides false information with objective to deceive the consumers, then such advertisement is termed as false advertisement.
References:
1. Intellectual property right, Deborah, E. Bouchoux, cengage learning.
2. Intellectual property right - Unleashing the knowledge economy, prabuddhaganguli, Tata Mc Graw Hill Publishing Company Ltd.
Disclaimer: The contents/topics of the subject "Intellectual Property Rights" is either copied or collected from respective bare acts and websites. Hence the plagiarism issue should be ignored.
